CHAPTER ONE
RIGHTS AND DOLLARS
A
merican society proclaims the worth of every human being. All
citizens are guaranteed equal justice and equal political rights.
Everyone has a pledge of speedy response from the fire department
and access to national monuments. As American citizens, we are
all members of the same club.
Yet at the same time, our institutions say “find a job or go
hungry,” “succeed or suffer.” They prod us to get ahead of our
neighbors economically after telling us to stay in line socially.
They award prizes that allow the big winners to feed their pets
better than the losers can feed their children.
Such is the double standard of a capitalist democracy, professing
and pursuing an egalitarian political and social system and simultaneously generating gaping disparities in economic well-being. This
mixture of equality and inequality sometimes smacks of inconsistency and even insincerity. Yet I believe that, in many cases, the
institutional arrangements represent uneasy compromises rather
than fundamental inconsistencies. The contrasts among American
families in living standards and in material wealth reflect a system
of rewards and penalties that is intended to encourage effort and
channel it into socially productive activity. To the extent that the
system succeeds, it generates an efficient economy. But that pursuit of efficiency necessarily creates inequalities. And hence society
faces a tradeoff between equality and efficiency.
1
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Tradeoffs are the central study of the economist. “You can’t
have your cake and eat it too” is a good candidate for the fundamental theorem of economic analysis. Producing more of one
thing means using labor and capital that could be devoted to
more output of something else. Consuming more now means
saving less for the future. Working longer impinges on leisure.
The crusade against inflation demands the sacrifice of output and
employment—posing the tradeoff that now concerns the nation
most seriously.
I have specialized throughout my career on the tradeoff between
inflation and unemployment. To put it mildly, the search for a satisfactory way of managing it has not yet been successfully completed. I, for one, have not given up; indeed, I plan to spend the
rest of my professional life on that problem. But in this essay I am
wandering away from my usual concerns briefly to discuss an even
more nagging and pervasive tradeoff, that between equality and
efficiency. It is, in my view, our biggest socioeconomic tradeoff,
and it plagues us in dozens of dimensions of social policy. We can’t
have our cake of market efficiency and share it equally.
To the economist, as to the engineer, efficiency means getting
the most out of a given input. The inputs applied in production
are human effort, the services of physical capital such as machines
and buildings, and the endowments of nature like land and mineral resources. The outputs are thousands of different types of
goods and services. If society finds a way, with the same inputs, to
turn out more of some products (and no less of the others), it has
scored an increase in efficiency.
This concept of efficiency implies that more is better, insofar as
the “more” consists of items that people want to buy. In relying on
the verdicts of consumers as indications of what they want, I, like
other economists, accept people’s choices as reasonably rational
expressions of what makes them better off. To be sure, by a different set of criteria, it is appropriate to ask skeptically whether people are made better off (and thus whether society really becomes
E QU AL ITY AND EFFIC IENC Y | 3
more efficient) through the production of more whiskey, more
cigarettes, and more big cars. That inquiry raises several intriguing further questions. Why do people want the things they buy?
How are their choices influenced by education, advertising, and
the like? Are there criteria by which welfare can be appraised that
are superior to the observation of the choices people make? Without defense and without apology, let me simply state that I will not
explore those issues despite their importance. That merely reflects
my choices, and I hope they are accepted as reasonably rational.
I have greater conviction in essentially ignoring a second type of
criticism of the “more is better” concept of efficiency. Some warn
that the economic growth that generates more output today may
plunder the earth of its resources and make for lower standards of
living in the future. Other economists have recently accepted the
challenge of the “doomsday” school and, in my judgment, have
effectively refuted its dire predictions.1
The concept of economic equality also poses its problems,
which I shall explore more fully in chapter 3. Impressionistically, I
shall speak of more or less equality as implying smaller or greater
disparities among families in their maintainable standards of living, which in turn implies lesser or greater disparities in the distribution of income and wealth, relative to the needs of families
of different sizes. Equal standards of living would not mean that
people would choose to spend their incomes and allocate their
wealth identically. Economic equality would not mean sameness
or drabness or uniformity, because people have vastly different
tastes and preferences. Within any income stratum today, some
families spend far more on housing and far less on education than
do others. Economic equality is obviously different from equality
1. See William D. Nordhaus, “World Dynamics: Measurement without Data,”
Economic Journal, Vol. 83 (December 1973), pp. 1156–83; and Robert M. Solow,
“Is the End of the World at Hand?” in Andrew Weintraub, Eli Schwartz, and J.
Richard Aronson (eds.), The Economic Growth Controversy (International Arts and
Sciences Press, 1973), pp. 39–61.
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of opportunity, as I shall use the terms, and I shall explore that
distinction further in chapter 3.
The presence of a tradeoff between efficiency and equality
does not mean that everything that is good for one is necessarily
bad for the other. Measures that might soak the rich so much as
to destroy investment and hence impair the quality and quantity of jobs for the poor could worsen both efficiency and equality. On the other hand, techniques that improve the productivity
and earnings potential of unskilled workers might benefit society
with greater efficiency and greater equality. Nonetheless, there are
places where the two goals conflict, and those pose the problems.
The conflicts in the economic sphere will be discussed in chapter
2, which will analyze the ways that the market creates inequality and efficiency jointly, and in chapter 4, which will examine
the ways that federal policy attempts to nudge the distribution of
wealth and income generated by the market toward greater equality by such measures as progressive taxation, social insurance,
welfare, and jobs programs.
In this chapter, I will examine the ways in which American society promotes equality (and pays some costs in terms of efficiency)
by establishing social and political rights that are distributed
equally and universally and that are intended to be kept out of the
marketplace. Those rights affect the functioning of the economy
and, at the same time, their operation is affected by the market.
They lie basically in the territory of the political scientist, which is
rarely invaded by the economist. But at times the economist cannot afford to ignore them. The interrelationships between market
institutions and inequality are clarified when set against the background of the entire social structure, including the areas where
equality is given high priority.
A society that is both democratic and capitalistic has a splitlevel institutional structure, and both levels need to be surveyed.
When only the capitalistic level is inspected, issues concerning the
distribution of material welfare are out of focus. In an economy
EQU AL ITY AND EFFIC IENC Y | 5
that is based primarily on private enterprise, public efforts to promote equality represent a deliberate interference with the results
generated by the marketplace, and they are rarely costless. When
the question is posed as: “Should the government tamper with
the market?” the self-evident answer is a resounding “No.” Not
surprisingly, this is a common approach among anti-egalitarian
writers. Forget that the Declaration of Independence proclaims
the equality of human beings, ignore the Bill of Rights, and one
can write that only intellectuals—as distinguished sharply from
people—care much about equality.2 With these blinders firmly in
place, egalitarianism in economics can be investigated as though it
were an idiosyncrasy, perhaps even a type of neurosis.3
It is just as one-sided to view enormous wealth or huge incomes
as symptoms of vicious or evil behavior by their owners, or as an
oversight of an egalitarian society. The institutions of a market
economy promote such inequality, and they are as much a part
of our social framework as the civil and political institutions that
pursue egalitarian goals. To some, “profits” and “rich” may be
dirty words, but their views have not prevailed in the rules of the
economic game.
To get a proper perspective, even an economist with no training in other social sciences had better tread—or at least tiptoe—
into social and political territory. And that is where I shall begin.
I shall travel through the places where society deliberately opts
for equality, noting the ways these choices compromise efficiency
and curb the role of the market, and examining the reasons why
society may choose to distribute some of its entitlements equally.
I shall focus particularly on some of the difficulties in establishing
2. Irving Kristol, “About Equality,” Commentary, Vol. 54 (November 1972),
pp. 41–47.
3. Harry G. Johnson, “Some Micro-Economic Reflections on Income and Wealth
Inequalities,” Annals of the American Academy of Political and Social Science, Vol.
409 (September 1973), p. 54. Johnson attributes the concern with inequality, in part,
to “a naive and basically infantile anthropomorphism.”
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and implementing the principle that the equally distributed rights
ought not to be bought and sold for money.
the domain of rights
A vast number of entitlements and privileges are distributed universally and equally and free of charge to all adult citizens of the
United States. Our laws bestow upon us the right to obtain equal
justice, to exercise freedom of speech and religion, to vote, to take
a spouse and procreate, to be free in our persons in the sense of
immunity from enslavement, to disassociate ourselves from American society by emigration, as well as various claims on public
services such as police protection and public education. For convenience, I shall call all of these universal entitlements “rights,”
recognizing that this is a broader use of the term than most political theorists employ and that it lumps together freedom of speech
and free access to visit the Capitol.
Rights have their negative side as well, in the form of certain
duties that are imposed on all citizens. For example, everyone
has a responsibility to obey the law—anyone who would merely
balance the cost of risking a prison sentence against the benefits
obtainable from stealing a wallet is violating that duty. Military
conscription and jury service are examples of duties assigned—in
principle, if not always in practice—by random selection and not
according to the preferences or status of individuals.
Features of Rights
An obvious feature of rights—in sharp contrast with economic
assets—is that they are acquired and exercised without any monetary charge. Because citizens do not normally have to pay a price
for using their rights,4 they lack the usual incentive to economize
4. Money may be relevant indirectly. Visiting the Capitol involves the cost of
transportation. More seriously, the cost of obtaining equal justice before the law
creates problems discussed later in this chapter.
EQU AL ITY AND EFFIC IENC Y | 7
on exercising them. If the fire department charged for its services,
people would be at least a little more reluctant to turn in an alarm
and perhaps a bit more systematic about fire prevention. If speaking out on public issues had a price tag, citizens might be more
thoughtful before they sounded off—and perhaps that would
improve the quality of debate. But society does not try to ration
the exercise of rights.
Second, because rights are universally distributed, they do not
invoke the economist’s principle of comparative advantage that
tells people to specialize in the things they do particularly well.
Everybody can get into the act, including some who are not talented actors. Some people with great skill in their civilian pursuits
make hopelessly inept soldiers; thus, the draft cannot provide the
most efficient army, yet it is the way we raise wartime military
forces. Surely, voters do not have equal ability, equal information
or education, or an equal stake in political decisions. Since those
decisions are concentrated on taxing and spending, property owners and taxpayers may have a greater stake in them; that relative difference is ignored in the acceptance of universal suffrage.
We have dismissed Edmund Burke’s contention that a limitation
of suffrage to property owners might help to ensure a thoughtful approach to social policy.5 Similarly, although children are
excluded from voting rights, we forgo the use of even a minimum
test of competence like literacy as a qualification.
We have rejected John Stuart Mill’s proposal that differential
voting powers should be based on achievement and intelligence,
despite his insistence that such a system was “not . . . necessarily invidious . . .”6 Recently, a writer on the op-ed page of the
New York Times reinvented Mill’s wheel, proposing a “system of
proportional representation that would weight each man’s vote
5. Edmund Burke, Reflections on the Revolution in France (1st ed., 1790; Penguin Books, 1969), pp. 140–41.
6. John Stuart Mill, Considerations on Representative Government (1st ed.,
1875; Bobbs-Merrill, 1958), p. 136.
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in proportion to his demonstrated capability to make intelligent
choices.”7 Such proposals imply that the division of labor is relevant to the distribution of voting rights, and given that fundamental premise, they might make sense. But rejecting that premise,
many of us find them preposterous.
A third characteristic of rights is that they are not distributed
as incentives, or as rewards and penalties. Unlike the dollar prizes
of the marketplace or the nonpecuniary honors and awards elsewhere, extra rights and duties are not used to channel behavior
into socially constructive pursuits. In principle, people could be
offered extra votes or exemptions from the draft in recognition
of outstanding performance, and those rewards might serve as
added incentives to productive achievement. But only in a few
limited and extreme cases, like the loss of the right to vote by convicted felons, does society establish a quid pro quo in the domain
of rights.
A century ago, that advocate of thoroughgoing laissez-faire,
Herbert Spencer, opposed a host of universally distributed public
services, resting his criticisms on several grounds, including disincentive effects. Even public libraries drew his scorn.8 After all, they
offer people real income without requiring any effort in return.
Indeed, free books may be doubly damned because they are a form
of real income that increases the value of leisure. Spencer certainly
was revealing some bizarre social attitudes, but he had a point in
recognizing the inefficiency of rights.9
Fourth, the distribution of rights stresses equality even at the
expense of equity and freedom. When people differ in capabilities, interests, and preferences, identical treatment is not equitable treatment, at least by some standards. It would be hard to
7. Joseph Farkas, “One Man, 1/4 Vote,” New York Times, March 29, 1974.
8. Herbert Spencer, The Man versus the State (Appleton, 1884), p. 33.
9. To be sure, the efficiency argument is not clear-cut for public libraries, since
access to books may build human capital.
EQU AL ITY AND EFFIC IENC Y | 9
defend the provision of public education out of tax revenue as
equitable to the childless or the patrons of private schools, however compelling its other merits. People are not forced to exercise their rights—freedom of speech includes the right to be silent,
and universal suffrage does not impose a requirement to go to the
polls. But duties clearly encroach on freedom. Moreover, people
are forcibly prevented from buying and selling rights; and that
deprives them of freedom.
That important principle—that rights cannot be bought and
sold—is the final characteristic on my list. The owner may not
trade a right away to another individual either for extra helpings
of other rights or for money or goods. Such bans fly in the face of
the economist’s traditional approach to the maximization of welfare. As James Tobin of Yale University put it, “Any good second
year graduate student in economics could write a short examination paper proving that voluntary transactions in votes would
increase the welfare of the sellers as well as the buyers.”10
It takes only a little imagination to envision many new markets in rights that might arise if trades were permitted. The ban
on indentured service is an obviously coercive limitation on free
trade; it discourages investments by businessmen in the training
and skills of their employees, and prevents bargains that might
be beneficial to both the seller of his person and the buyer. The
one-person, one-spouse rule could be altered to permit voluntary
exchange by giving each person a marketable ticket to a spouse
rather than a nontransferable right to marry one (and no more
than one) person at a time. Since jury trials are expensive, society
might offer any defendant who waived that right some portion of
the savings. Trade in military draft obligations is easy to conceive
and, in fact, has occurred in the past. Even the obligation to obey
10. James Tobin, “On Limiting the Domain of Inequality,” Journal of Law and
Economics, Vol. 13 (October 1970), p. 269.
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the law might be made marketable, as it was, in a figurative sense,
when the Church sold indulgences during the Middle Ages.11
In short, the domain of rights is full of infringements on the
calculus of economic efficiency. Our rights can be viewed as inefficient, because they preclude prices that would promote economizing, choices that would invoke comparative advantage, incentives
that would augment socially productive effort, and trades that
potentially would benefit buyer and seller alike.
The Reasons for Rights
Why then does society establish these “inefficient” rights? The justifications for rights take three routes—libertarian, pluralistic, and
humanistic.
liberty. To the advocate of laissez-faire, many rights protect
the individual citizen against the encroachment of the state, and
thus convey benefits that far outweigh any cost of economic inefficiency. Freedom of speech and religion must be universal and
unconditional; regulation, limitation, or discrimination with
respect to them would vest discretionary authority in the government. Any condition for eligibility to vote that cannot be settled
by the presentation of a birth certificate would give powers to
some public official who might have an interest in keeping certain
people out of the polling booth. Even if a literacy test administered
by an objective deity would be desirable, one administered by a
bureaucracy would be intolerable. The nice thing about universality and equality is that they are identifiable and objective criteria
and hence hard to abuse. Thus, the libertarian embraces equality
not because he cares at all for equality but because he cares a great
11. According to the Encyclopaedia Britannica, it is a “popular misconception”
that an indulgence granted “permission to commit sin.” It is suggested instead that
“an indulgence can perhaps be best compared to a pardoning of part of the sentence
of a prisoner who has performed some good work not directly connected with either
his crime or his sentence.” By any interpretation, the purchaser of the indulgence
was buying some amelioration of the usual workings of holy law.
EQU AL ITY AND EFFIC IENC Y | 11
deal about a limited government whose powers are circumscribed
by explicit and objective rules. To him, rights are seen mainly as
rights conferred on the individual against the state, and this view
prevails explicitly regarding individual rights in the marketplace.12
This explanation for equally distributed rights can take care of
only part of the domain that is in fact defined by existing American institutions. It cannot explain why citizens entrust power to
the state to prevent other individuals from encroaching on their
freedoms. It cannot explain the whole sphere of civil liberties or
public services. Nor can it explain government-imposed bans on
the voluntary exchange of rights.
The traditional rationale for public interference with market
exchange and for the public provision of services rests on so-called
“externalities,” which involve the interests of third parties.13 Environmental regulations are necessary because the pollution of the
air and the water by one individual harms innocent bystanders.
The production of services for national defense and lighthouses
cannot be left to private enterprise because there is no effective
way to keep the benefits channeled to the buyers and away from
the nonbuyers. No one can be permitted to bargain away his right
to call the fire department in return for a tax cut, because his
next-door neighbor would be made worse off. While that ban on
exchange seems adequately explained by externalities, many of
the other bans—for example, that on vote trading—do not.14 Even
12. See the discussion of various aspects of this issue in F. A. Hayek, The Constitution of Liberty (University of Chicago Press, 1960), pp. 85–88, 103–07, 116–17,
153–55.
13. For a classical discussion of externalities, see A. C. Pigou, The Economics of
Welfare (Macmillan, 1920), pp. 115–16.
14. An interesting (but, to me, unpersuasive) justification of the ban on vote
trading as a deterrent to potential monopoly is presented by James M. Buchanan
and Gordon Tullock, The Calculus of Consent (University of Michigan Press, 1962),
pp. 270–74. Their discussion helps to clarify the nature of the externalities in vote
trading. Consider the following: If Ann buys Bob’s vote, she gains power over Carl,
and Carl can be made worse off (or, if Ann is his ally, better off). Hence it is sometimes claimed that an externality exists. But if Ann bought Bob’s vote in an auction
1 2 | ARTH U R M. OKU N
with the invocation of externalities, liberty cannot single-handedly
explain the full range of rights in American society.
pluralism. Another route into the domain of rights, stressing
pluralism and diversification, can be sketched along lines developed by my teacher, Karl Polanyi. As he saw it, the network of
relationships in a viable society had to rest on a broad base of
human motives and human interests. Material gain is (at most)
one of the many motives propelling economic activity. In turn, the
economy is only one aspect of society and must be “embedded
into” a successful society. Polanyi deplored a “market society” in
which all other relationships would be subordinated to the marketplace.15 Rights can then be viewed as a protection against the
market domination that would arise if everything could be bought
and sold for money. Everyone but an economist knows without
asking why money shouldn’t buy some things. But an economist
has to ask that question. Every asset that lies in the scope of the
market is measured by a single yardstick calibrated in dollars. All
tradable goods and services are assigned their prices, and their values all become dimensionally comparable: a book is ten loaves of
bread or two dozen bottles of beer. The imperialism of the market’s
market, she would have acquired it only by outbidding Carl—Carl had the opportunity to internalize the cost, and his failure to outbid Ann shows that the benefits to
him weren’t worth the cost. On the other hand, if the transaction did not take place
in an auction market, and Carl had no opportunity to bid, then the welfare cost to
him of losing that opportunity has nothing to do with the particular characteristics
of votes. If Bob sold Ann strawberries that Carl might have liked to purchase, that
would have imposed a welfare cost on him too. Thus, power over a third party is
not the correct way to describe the externality. Rather, it arises because of the special
feature of votes as tradable commodities—that winner takes all. The swing vote is
worth everything, and all others are worth nothing. The value of Carl’s vote depends
on how the remaining votes are distributed between his allies and opponents. In that
sense, any trading between allies and opponents has an external effect on every vote
holder who is not engaged in the transaction.
15. Karl Polanyi, “Our Obsolete Market Mentality,” in George Dalton (ed.),
Primitive, Archaic, and Modern Economies (Beacon, 1971), pp. 59–77. Polanyi was
not much impressed by the effectiveness of democratic political institutions in circumscribing the domain of the marketplace. Hence, he viewed laissez-faire capitalism as a market society.
EQU AL ITY AND EFFIC IENC Y | 13
valuation accounts for its contribution, and for its threat to other
institutions. It can destroy every other value in sight. If votes were
traded at the same price as toasters, they would be worth no more
than toasters and would lose their social significance.
Society refuses to turn itself into a giant vending machine that
delivers anything and everything in return for the proper number
of coins. When members of my profession sometimes lose sight
of this principle, they invite the nastiest definition of an economist: the person who knows the price of everything and the value
of nothing. Society needs to keep the market in its place. The
domain of rights is part of the checks and balances on the market
designed to preserve values that are not denominated in dollars.
For the same reasons that an investor holds many different stocks
and bonds in his portfolio, society diversifies its mechanisms for
distribution and allocation. It won’t put all of its eggs in the market’s basket.16
One of these mechanisms is the rights bestowed on all the citizens. Another set consists of various nonmonetary distinctions
that are awarded unequally in recognition of achievement but
that are not allowed to bear price tags. Precisely because they cannot be bought for money, Olympic medals and Phi Beta Kappa
keys have special value as motivating forces. Still another set of
mechanisms consists of voluntary arrangements among individuals that are based on affection and fraternity. People want friendship and love for “themselves,” and not for their money. The
bond between friends is not merely bilateral philanthropy nor a
mutual-­assistance contract. These diversified mechanisms keep the
16. This is the same reasoning that leads to my conviction that real gross national
product should not and cannot measure social welfare. See Arthur M. Okun, “Social
Welfare Has No Price Tag,” Survey of Current Business, Vol. 51 (July 1971), Pt. 2,
pp. 129–33. In both cases, I am arguing that social welfare is a vector and cannot
be adequately described by a scalar. As a result, I am a strong advocate of multidimensional social indicators and a strong opponent of attempts to translate every
dimension of social progress and retrogression into a dollar magnitude. That latter
endeavor is an act of imperialism by economists, in my judgment.
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market in its place and keep society from becoming a giant vending machine. They are the glue that holds society together.
humanism. A third explanation for rights stresses their recognition of the human dignity of all citizens. John Rawls, the Harvard philosopher, has developed that rationale brilliantly, deriving a principle of “equality in the assignment of basic rights and
duties”17 from a theory of the social contract. Rawls asks what
kind of a social constitution would be adopted if all the framers of
the rules operated in ignorance of their class position in the future
society and of their relative standing with respect to assets and
abilities. In such an “original position,” in Rawls’ term, the shared
sense of justice as fairness could prevail with no distortion from
self-interest, since all participants would be mutually disinterested.
He concludes that these founding fathers and mothers would opt
for equality in the “basic liberties” that relate to the freedom of
the individual to follow his conscience, express his own moral
principles, and participate in social decisions.
In Rawls’ voluntary association, every member wants to ensure
the recognition of the principles of self-respect and of fairness for
all citizens, because that recognition protects him. The basic liberties are equally distributed because people value equality as a type
of “mutual respect . . . owed to human beings as moral persons.”18
These rights that are obtained without a quid pro quo recognize
the worth of every citizen in the society. They go along with membership in the club. They then become the hallmarks of affiliation,
a part of human dignity, and take on added significance for that
reason. Because they are entitlements and not handouts, people
can accept them freely without feeling like freeloaders.
The libertarian, pluralistic, and humanistic explanations of
rights are not inconsistent; in modern American society, all three
considerations play a role in the domain of rights. The preference
17. John Rawls, A Theory of Justice (Harvard University Press, 1971), p. 14 and
chap. 4.
18. Ibid., p. 511; see also pp. 60, 250.
E QU AL ITY AND EFFIC IENC Y | 15
for equality à la Rawls is one of the elements underlying the character and the scope of rights. The nature of the rights established
by our institutions reveals that equality is one of our social values.
The Scope of Rights
How and where does society draw the boundary lines between
the domain of rights and that of the marketplace? It is tempting
to say that rights deal with noneconomic assets while the market handles economic assets. But that is circular. Since rights may
not be bought and sold for dollars, and since they are distributed
freely to citizens, they automatically lack the price-tag hallmark
of economic “things.” In that sense, rights define and delimit the
range of economic assets. The Emancipation Proclamation took
human beings off the list of commodities for which the market
could set price tags. Less dramatically, if fire departments operated
as public utilities and thus charged for their services, they would
be viewed in economic terms. Because these services are provided
as a right, they are pulled outside the framework of the market.
But they nonetheless involve the use of labor and capital; they
are paid for collectively through taxation; and their resource costs
make them “economic.”
To be sure, resource costs influence the boundary line. Any
entitlement is more likely to be established as a right when it has
relatively low resource costs, when economizing and comparative
advantage and the other verities of the marketplace are relatively
unimportant compared with the significance of broad sharing and
common access.19 It is much less expensive, in every sense, to fulfill the right to free speech than a “right” to free food. But society
does provide some costly or resource-using rights, like public education. And one way proponents of equality seek to narrow the
differences in standards of living among Americans is to lengthen
19. Even the dividing line between the trivial “right” of free parking spaces and
the economic good of metered parking fits this description. For the former, economizing through a price tag isn’t worthwhile.
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the list of resource-using rights. A government obligation to provide suitable housing or adequate diets for every citizen would, in
effect, set a higher basic minimum of real income for all families.
The advocacy of new rights can be carried to extremes. I once got
into a heated debate with an audience of medical administrators
when, taking what I viewed as an outlandish example, I suggested
that any national health program should not grant me at public
expense all the pairs of eyeglasses I might like. I learned to my
surprise that they favored an unlimited right to eyeglasses.
Economists run into such surprises frequently. Nearly all members of my profession would favor some reliance on “effluent
fees”—prices imposed on pollutants—rather than total commitment to complex, detailed regulations, as a means of allocating
the safe and tolerable amount of discharge into air and water.
But most legislators denounce such proposals as selling licenses
to pollute to the rich. Suggestions that stiffer tolls might unclog
our highways and bridges get a hostile reception. Arguments that
interest rates should be flexible enough to clear financial markets
that have ample competition are greeted with derision. Apparently,
many public officials and their constituents want these items to be
treated as rights and kept out of the marketplace. On a first reaction, I am baffled: When money buys bread and baby’s shoes, why
should it not buy these things? On second thought, a glimmer of
understanding shines through. I think some of the critics are most
concerned about extending the list of marketable assets, in general,
rather than about including these particular items. They believe the
scope of the marketplace is already too great, and they oppose any
changes that would add new dimensions of economic inequality.
the fuzzy right to survival. While I am not persuaded by
the arguments for many proposed new rights, the case for a right
to survival is compelling. The assurance of dignity for every member of the society requires a right to a decent existence—to some
minimum standard of nutrition, health care, and other essentials
of life. Starvation and dignity do not mix well. The principle that
E QU AL ITY AND EFFIC IENC Y | 1 7
the market should not legislate life and death is a cliché. I do not
know anyone today who would disagree, in principle, that every
person, regardless of merit or ability to pay, should receive medical care and food in the face of serious illness or malnutrition.
Attitudes about this issue have changed dramatically during the
past century. At least some devotees of laissez-faire capitalism in
the nineteenth century opposed in principle any right to survival,
beyond the right to beg from private philanthropists.20 To them,
economic efficiency required the forceful implementation of the
rule that those who do not work shall not eat.
Although the right to survival now seems to be generally accepted,
it has not been explicitly written into our statute books. It has been
kept fuzzy, because its fulfillment could be very expensive. A formal and clear commitment that individuals could count on would
increase the number who call for help. Uncertainty holds down the
resource cost. To the needy, help is where they find it. Sometimes,
it is found more easily from philanthropic organizations than from
public emergency facilities. Sometimes, it is available only through
some demeaning proof of dire need—thus imposing a toll of shame
in lieu of cash, or a sacrifice of pride for a dinner.
Ever since the days of the New Deal, however, the federal government has increasingly assumed some of these obligations and
formalized some commitments. In particular, the right to some
20. Herbert Spencer, for example, wrote in Social Statics and Man versus the
State, published in 1884: “The command ‘if any would not work neither should he
eat,’ is simply a Christian enunciation of that universal law of Nature under which
life has reached its present height—the law that a creature not energetic enough to
maintain itself must die. . . .” Spencer was even skeptical of private philanthropy,
arguing against the “injudicious charity” that permits “the recipients to elude the
necessities of our social existence.” These passages are cited in Introduction to Contemporary Civilization in the West, A Source Book Prepared by the Contemporary
Civilization Staff of Columbia University, Vol. 2 (Columbia University Press, 1946),
pp. 553, 555. Polanyi offers other examples of eighteenth and nineteenth century
extremism in The Great Transformation (Farrar, 1944; Beacon, 1957), pp. 86–118,
passim. Rereading the old-time libertarians made me realize how moderate most of
the contemporary brand is by comparison.
1 8 | ARTH U R M. OKU N
minimum standard of consumption has been established for the
elderly. The evolution of old-age retirement benefits into a right is
instructive. The basic philosophy of social security has been and
remains contributory, stressing the obligation of people to provide for themselves. Initially, those who had not been covered by
the contributory system during their working careers were not
entitled to benefits upon their retirement. For the first time, legislation enacted in 1966 bestowed some minimum benefits on all
Americans over the age of 72, regardless of whether they had ever
contributed to the system. Since then, the level of minimal entitlements has been increased and the age requirement reduced to 65
through additional programs that supplement the standard system
of old-age benefits. Currently, the principle of contribution serves
mainly to preserve pride while fulfilling the right to survival.21
Issues surrounding the extension and implementation of a formal right to a decent existence are the heart of today’s controversies about health insurance, the negative income tax, and welfare
reform. Fulfilling that right is an urgent and feasible step toward
economic equality in America, and I shall discuss that issue in
detail in chapter 4.
Rights of survival set floors under the consumption of the various items identified as essential. They thus preserve some incentives for economizing, and leave considerable scope for the marketplace in determining the production and distribution of food,
health care, housing, and the like, for the majority of citizens who
wish to, and are able to, spend more than the basic minimum
that is guaranteed to all. In this respect they differ from free firefighting services, which are essentially unlimited and adequate to
serve the needs of virtually all citizens. They also contrast with
those political and civil rights that money is not allowed to buy.
21. The establishment of old-age payroll-tax “contributions” as mandatory is
also interesting. Once society decides it will not let old people starve (regardless of
any previous profligacy or imprudence on their part), it cannot realistically permit
workers to opt out of the social security system.
E QU AL ITY AND EFFIC IENC Y | 19
bans on exchange. Once political and civil rights are seen as
integral to human dignity, it becomes clear why they shouldn’t be
bought or sold for money. If someone can buy your vote, or your
favorable draft number, or a contract for your indentured service,
he can buy part of your dignity; he can buy power over you. By
prohibiting your sale of rights, society is encroaching on your freedom, but it is also protecting you from others who might want to
take your rights away. Your creditors cannot make you part with
your dignity. They cannot force you into trades that are made as
a last resort, which could not be fair trades and which would be
distorted by vast differences in the bargaining power of the participants and by the desperation that spawns them. Any rational
person who would sign a contract for indentured service must be
in desperate straits. Similarly, anyone taking out a loan to cover
basic consumption needs must be operating under extreme pressure; hence the religious bans on usury during the Middle Ages.22
Whenever the law bans trades of last resort, it shuts some
potential escape valve for the person in desperate straits. In shutting the valve, society implies that there must be better ways of
preventing or alleviating that desperation. When, for example,
child labor was restricted, widowed mothers and disabled fathers
were deprived of the opportunity to make ends meet out of the
earnings of their young children. When the battle over child labor
was fought in Great Britain, the proponents of the ban viewed it
as part of a larger program in which society would provide the
disadvantaged with aid in another and better form.23
Minimum-wage laws and work-safety legislation can be viewed
most fruitfully as further examples of prohibitions on exchanges
born of desperation, extending the logic of the ban on indentured
service. Some economists strain to understand the sources of
22. See Henri Pirenne, Economic and Social History of Medieval Europe (Harcourt, Brace, 1937), pp. 137–38.
23. See Pigou, Economics of Welfare, pp. 788–90.
2 0 | ARTH U R M. OKU N
­minimum-wage laws:24 Are they justified as an offset to monopoly
power in hiring labor? Do they emerge out of a conspiracy by
skilled workers to reduce the job opportunities of the unskilled?
Or are they urged by the skilled on the premise that wages will be
raised all along the line as customary differentials are preserved?
Are they well-intentioned but misguided efforts to help the poor?
Similarly, some economists wonder whether work-safety legislation is warranted by lack of information about on-the-job dangers.
As I read the laws, they declare that anyone who takes an
absurdly underpaid or extremely risky job must be acting out of
desperation. That desperation may result from ignorance, immobility, or genuine lack of alternatives, but it should be kept out of
the marketplace. Recognizing that objective still leaves plenty of
room for debate about the proper scope of these laws. With these
bans, society assumes a commitment to provide jobs that are not
excessively risky or woefully underpaid. That commitment is often
regrettably unfulfilled, and perhaps, if it were fulfilled, the bans
would be unnecessary. Still, closing a bad escape valve may be an
efficient way of promoting the development of better ones through
the political process.
Prohibitions on exchange thus protect a variety of rights and
institutions from contamination by the market. But they can also
be manipulated to insulate unequal, oppressive, and hierarchical
institutions from ventilation by the market. Historically, caste
positions, feudal obligations, entailed land, and guild memberships have been maintained among the things that money should
not buy and sell. Those bans served to promote inequality as well
as economic inefficiency. Indeed, across the spectrum of primitive,
24. A summary of the diverse justifications of economists and others for minimum-wage laws is contained in David E. Kaun, “The Fair Labour Standards Act,”
South African Journal of Economics, Vol. 33 (June 1965), pp. 131–39. For a discussion of the efficacy of minimum-wage laws in alleviating poverty and in offsetting employer control in the labor market, see George J. Stigler, “The Economics of
Minimum Wage Legislation,” American Economic Review, Vol. 36 (June 1946), pp.
358–65.
EQU AL ITY AND EFFIC IENC Y | 2 1
ancient, medieval, and modern societies, the market has been
restricted more often to preserve unequal power and distinction for the few than to guarantee equal rights for the many.25
Tyrants, warriors, religious zealots, and dictators rarely tolerated
the rivalry of the marketplace in their ordered societies. The social
consequences of keeping the market in its place can be good or
bad, depending on what is put in the other places. The determination to fill many of them with equal rights is a unique characteristic of a democracy.
transgression of dollars on rights
In fact, money can buy a great many things that are not supposed
to be for sale in our democracy. Performance and principle contrast sharply. The marketplace transgresses on virtually every
right. Money buys legal services that can obtain preferred treatment before the law; it buys platforms that give extra weight to
the owner’s freedom of speech; it buys influence with elected officials and thus compromises the principle of one person, one vote.
The market is permitted to legislate life and death, as evidenced,
for example, by infant mortality rates for the poor that are more
than one and one-half times those for middle-income Americans.26
Even though money generally cannot buy extra helpings of
rights directly, it can buy services that, in effect, produce more or
better rights. Some kinds of political lobbying, for example, constitute a socially undesirable production process for “
­ counterfeiting”
25. Polanyi’s discussions of past social arrangements illustrate this point again
and again. But I doubt that he would agree with my generalization. Money arrangements generally get the lowest grades in his evaluation. Charles Kindleberger, a fellow admirer of Polanyi, also notes critically his eagerness to conclude that “. . .
interferences in the market economy are justified by the need to preserve the pattern
of society and the status of its members.” See Charles P. Kindleberger, “The Great
Transformation,” Daedalus, Vol. 103 (Winter 1974), p. 50.
26. Evelyn M. Kitagawa and Philip M. Hauser, Differential Mortality in the
United States: A Study in Socioeconomic Epidemiology (Harvard University Press,
1973), p. 28.
2 2 | ARTH U R M. OKU N
votes. There are two basic kinds of remedies. One of these countervails the resources available to the rich by providing publicly
financed resources to the poor. So long as the rich are able to draw
on their own resources, that approach sets a floor without the ceiling needed to achieve full equality. The alternative remedy involves
upside-down economics—it tries to make the socially undesirable
production process less “efficient” so that it becomes more difficult to counterfeit rights. I shall try to illustrate the principles and
problems in a few areas.
Equality before the Law
Although it is generally regarded as one of the most sacred rights,
equality before the law is often violated. Undoubtedly, the disadvantaged position of the poor before the law stems from many
sources; for example, better education and information help
affluent people to take full advantage of the legal system as a
means of realizing their goals and ambitions. But one element of
the disadvantage is readily identifiable, namely, the inequality of
representation by lawyers.27 When a poor defendant comes before
the bar of justice accompanied by a public defender or assigned
counsel, he clearly has a handicap relative to the wealthy defendant represented by a highly qualified, high-priced lawyer of his
choice. Equality before the law deserves a top priority ranking
among our rights. To fulfill that right, even minimally, calls for
an enormous and costly expansion of legal services for advising
and defending the poor.
27. See, for example, Jerome E. Carlin, Jan Howard, and Sheldon L. Messinger,
“Civil Justice and the Poor: Issues for Sociological Research,” Law and Society
Review, Vol. 1 (November 1966), pp. 9–90. They point out that “a large proportion
of poor defendants (particularly in misdemeanor cases) are not represented at all.
Moreover, when counsel is provided he frequently has neither the resources, the skill
nor the incentive to defend his client effectively; and he usually enters the case too
late to make any real difference in the outcome. Indeed, the generally higher rate of
guilty pleas and prison sentences among defendants represented by assigned counsel
or the public defender suggest[s] that these attorneys may actually undermine their
clients’ position . . .” (p. 56).
EQU AL ITY AND EFFIC IENC Y | 2 3
Money and Political Power
How do large corporations and wealthy individuals throw their
weight around unduly in the political process? There is no obvious
and natural mechanism that conveys extra helpings of votes to the
wealthy—any more than to the good-looking or the especially virtuous. Obviously, one route by which money buys political power
is through direct and indirect payments to political decisionmakers. On the best available evidence, most congressmen do not take
outright bribes; yet they do seek campaign funds by means that
are legal but that nevertheless bestow additional helpings of votes
on those who can afford, and who have the interest, to contribute large sums. These contributions have important and pervasive
influences on the behavior and attitudes of officials, even of honest
and scrupulous officials. I have heard the directors of financing
in a campaign organization urge a liberal Democrat to stay away
from loophole-closing tax reform as a campaign issue because it
would antagonize wealthy potential contributors. Another example was provided by super-rich Howard Hughes, who bought blue
chips in the form of a diversified portfolio of campaign contributions to candidates of both parties in an apparent effort to influence particular regional and industrial policies.
campaign financing. Full disclosure of contributions is not
enough to prevent serious transgression. A drastic limitation on the
amount of financial aid that any one individual or organization can
give candidates seems essential to equality at the polls. And if large
contributors are not allowed to pick up the tab for the opinions
and information that should flow in political campaigns, then the
taxpayer must. The public financing of campaigns for the Congress
and the Presidency is an indispensable ingredient in any satisfactory recipe for reform. And the initial legislative action to provide
public financing was the most important law passed in 1974.
To be sure, designing a sound plan for public financing poses
tough problems: the taxpayer should not be forced to buy an
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expensive podium for the vegetarian party, and neither should his
funds serve to entrench and rigidify our currently predominant
two parties. But, as I read the arguments against public financing, the real controversy is fundamental.28 Opponents of public
financing want primarily to preserve the freedom of individuals to
spend their money, if and as they choose, in order to influence the
outcome of elections. In my view, that is something money should
not buy. Thus, society must erect a sign that clearly says “no trespassing” on the right of universal suffrage.
Restrictions on campaign contributions can reduce significantly the political power of the super-rich. Of course, some of the
wealthy will find ways to defy the spirit of the law by selling the
congressman products at a discount, by hiring his nephew, and by
developing dodges that are far more ingenious than any I could
possibly concoct. But, if necessary, the law against bribes can be
clarified and extended. And limitations on contributions help to
unmask some types of payments that have been explained away as
“campaign assistance.”
lobbying. Restricting contributions will still leave people and
corporations many ways to show the intensity of their feelings
about issues and candidates. Some of these ways are good for the
process of deliberation; some are bad; some are questionable. And
all involve some expenditures of money: even a letter to a congressman takes a postage stamp. The key questions in appraising
the legitimacy of lobbying activities are: How does the lobbyist
make his case for or against proposed policy actions? What are his
instruments of persuasion?
As a means by which people (and business firms, unions, and
associations) can show how much they care about particular political decisions, lobbying is a legitimate—indeed, valuable—input
in the political process. And that includes promises and threats
28. See, for example, the arguments in Ralph K. Winter, Jr., in association with
John R. Bolton, Campaign Financing and Political Freedom (American Enterprise
Institute, 1973).
E QU AL ITY AND EFFIC IENC Y | 2 5
about how the pleaders will vote in the next election. Lobbying
is also a legitimate way to convey evidence about the favorable
or unfavorable consequences for the nation of a particular bill
or executive action. Of course, much of the evidence will be selfserving. Some briefs I have seen written by economists, predicting that a certain action will give us heaven or hell, just couldn’t
represent the earnest professional judgment of the authors. But
the safeguards against such pleading must lie in the good sense
(and informed skepticism) of the public official and in stronger
professional codes of ethics, rather than in laws to ban unsound
or insincere argumentation.
Lobbying is intolerable when the means of persuasion are promises of direct or indirect payments of a pecuniary character (money,
gifts, job patronage, honoraria, and the like) in return for the official’s decision. Much of lobbying has been linked to the promise of
campaign contributions, and restrictions on the latter should help
to reduce some of the worst lobbying pressures. Beyond that, a
code of conduct is needed to establish the boundaries of fair relationships between legislators and executive officials, on the one
hand, and lobbying groups, on the other. For one thing, that code
ought to keep any former public official out of the lobbying game
for several years after leaving office, thus precluding the temptation
to build good will as an investment for future employment.
If the uses of fat checkbooks in the political process can be
tightly regulated, the plutocracy will lose much of its political
punch. The captains and giants of industry are a tiny part of the
electorate, and they are reined in by the public’s natural skepticism about, and antagonism against, their particular interests and
pleadings. The majority of the folks back home tend to believe that
what’s good for General Motors can’t be good for the country, and
that gives a congressman incentives to oppose publicly positions
advocated by General Motors. Indeed, as the wealthy see it, kneejerk populism gives them an unfair handicap in national debates. I
would guess that it comes close to evening the score.
2 6 | ARTH U R M. OKU N
It is harder to even the score in cases where the wealthy have
subtle influences on groups of middle-class voters. Employees,
stockholders, suppliers, and neighbors of large corporations
may become dependent on them and hence become exponents
of positions favored by the rich and the powerful. These interdependencies arise because the American economy does not fit the
textbook’s purely competitive model in which everybody has the
option of taking an alternative job that is virtually as good as
the one he holds, or the option of selling to an alternative customer willing to buy the product at the going price. The interests
of stockholders of multinational companies were furthered by U.S.
government actions to undercut the Chilean socialist regime that
sought to expropriate Anaconda and ITT. Employees of the steel
industry have interests in curbs on imported steel, even when such
measures are bad for labor on the whole. To the extent that these
are the genuine interests of the small stockholders and the workers, their expression in the political process is perfectly appropriate. On the other hand, through the subtle dependencies of many
average Americans on them, the wealthy can obtain undue political leverage.
Consider a hypothetical example. The vice president of a large
manufacturing corporation walks into the office of a congressman whose district is plagued by high unemployment. The corporate representative explains that his firm is contemplating the
construction of a plant in the congressman’s district, and is investigating the various aspects of that location decision. Naturally, the
firm wants to know the climate of the district to estimate heating
bills, and similarly it wants to assess the political climate. It is not
unreasonable to ask whether the firm is going to be represented
by a friendly congressman who will view its interests sympathetically. The congressman is tempted to pledge his friendship and
help, perhaps solely to protect the interests of his constituents in
the availability of good jobs. Although nobody is doing anything
wrong, I find something wrong with this picture. And yet I cannot
EQU AL ITY AND EFFIC IENC Y | 27
prescribe a code of conduct that would distinguish clearly between
right ways and wrong ways for legislators to pursue the interests
of their constituents in their relationships with big business.
Similar problems arise from the power of interest groups that
have large memberships and therefore control many votes. Independent oil producers, farmers, teachers, homebuilders, unionized
workers, and welfare recipients all have organizations in Washington working to pass or oppose some laws. So do various groups
with particularly strong avocational interests, like gun enthusiasts
and the owners of private aircraft. Not all of these groups are rich,
but they all have focused objectives. They will support or oppose
vigorously a candidate according to his stand on the particular
issues close to their hearts. Intensity of preferences is the name of
their game; and it is a legitimate game, intended to balance the
inherent bias of democracy in favor of actions that benefit the
majority a little even when they hurt a small minority a great deal.29
Yet these groups seem to tilt the balance in the other direction, often obtaining benefits for the relatively few they represent at the expense of the unorganized majority. Their power is
enhanced by the costliness of information about the legislative
process. Only the rare milk consumer knows how his congressman votes on dairy price supports, but every milk producer does.
But voter-organizing and voter-informing are usually reinforced
by candidate-funding. In their repeated efforts to raise dairy support prices during the late sixties and early seventies, the associations of milk producers did not rely exclusively on their ability to
marshal the votes of their members; they threw in the secret ingredient of large campaign contributions. The Watergate revelations
about dollar-enriched milk products help to clarify why 200,000
milk producers have usually beaten 200,000,000 milk consumers
in the political process.
29. This point is argued strongly by Buchanan and Tullock, Calculus of Consent;
see, for example, p. 127.
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consumer power. When money transgresses equal political
rights, the consumer most often is the victim. Some of the remedies lie in strengthening the countervailing power of the consumer against the producer. Voluntary associations of consumers
have grown in strength during the past decade; and, on balance,
I believe they have been constructive. Occasionally, articulate
consumer advocates have pushed through legislation that most
American consumers did not want, like the mandatory interlock
ignition system, but they have been promptly reversed.30 And Congress has realized that no single person speaks for the consumer.
The proposed Consumer Protection Agency—a publicly financed
office of consumer advocacy—is one worthwhile step to strengthen
the public’s power. The bill to create that agency was brutally filibustered to death in 1974, but it should come alive in the near future.
At the local level, opening a line of communication for the individual to his government through a personal representative—the
ombudsman system—is an appealing way to help fulfill the rights
to public services. As the husband of a part-time ombudsperson, I
have been regaled with anecdotes about services performed by the
government of the District of Columbia in response to telephone
calls from citizens. Often the expression of appreciation that follows seems out of proportion to the specific mission accomplished;
the fulfillment of the person’s request is especially valuable as a
demonstration that rights can be validated. In addition, such a system gives the top local officials a useful tally of the public’s specific
complaints and concerns.
The Corrective Strategy
My purpose is not to advance specific remedies, but to highlight the general problem of transgression as an urgent one that
30. I also regret that consumer advocates pay so little attention to the harm
imposed on consumers by anticompetitive laws, like barriers to imports, resale price
maintenance, and the like. I suppose it is harder to dramatize these damaging institutions than to expose unsafe products or false advertising.
EQU AL ITY AND EFFIC IENC Y | 2 9
requires a serious and concerted attack by political scientists, lawyers, economists, and the public at large. Some transgressions of
money on rights make a mockery of America’s commitment to
civil liberties and democracy. Some of our most cherished rights
are auctioned off to the highest bidder. These transgressions may
be as important a source of cynicism, radicalism, and alienation as
the vast disparities in material living standards between rich and
poor. Yet pitifully little effort has gone into devising measures that
would narrow the gap between principle and practice.
The key remedies must be specific aids and sanctions rather than
general efforts to curb bigness and wealth. Breaking a $20 billion
corporation into ten $2 billion pieces still leaves entities large
enough to transgress political rights, if such actions are tolerated
by the law. Even if the most ambitious program of progressive
taxation were enacted, Howard Hughes would retain more than
enough money to produce counterfeit votes. It is no easy task to
formulate and enforce specific and detailed rules of the game that
would prevent him from spending money to acquire undue power.
But I find that route far more promising than one that seeks to
curb his power by taking his money away. The case for progressive
taxation rests on other grounds, which I shall discuss in chapter 4.
In some limited ways, restrictions on the scope of economic
activities by the wealthy may help to curb their power. The more
markets a corporation operates in and the more congressional districts it provides jobs and orders for, the greater the opportunities
for the plutocrats to obtain undue political power. In this respect,
conglomerate corporations like ITT are perhaps the most dangerous ones. In retrospect, the conglomerate merger movement
deserved more attention than it received from many economists,
who viewed it complacently because it did not reduce the extent of
competition within industries. A more determined effort to limit
size and scope can thus help a little. But the basic transgressions
of the marketplace on equal rights must be curbed by specific,
detailed rules on what money should not buy.
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Even so, transgression cannot be totally eliminated. Money
will still impinge to some degree because that undesirable production process will retain some efficiency in producing counterfeit rights. In that sense, it seems impossible to achieve Rawls’
“lexical ordering,”31 which insists that equality in the domain of
basic liberties should never be compromised by inequality of other
assets. Thus, I cannot quarrel with the radical’s verdict that complete equality is unattainable in anything unless it is attained in
everything. But if the transgression problem is approached with
less-than-perfectionist objectives, the outlook is much brighter.
The thousand-dollar-a-day lawyer need not be a grave threat if
adequate public defenders are available. The opportunity for a
wealthy individual to take advertising space in the newspaper to
expound his views on social issues is no great encroachment on
the freedom of speech of others. Buying advertising space is tolerable; buying legislators is intolerable. I am hopeful that a concerted and focused program of specific remedies can correct the
serious transgressions of dollars on the domain of rights, and I am
convinced that the construction of such a program should be the
top priority for social reformers.
31. Rawls, Theory of Justice, pp. 302–03.